Nobel Laureate Robert Schiller has referred to investing as ‘a social activity.’ Why is that, and do you agree with him?
Yes, although ‘active investing’ is more prone to social influence than ‘passive investing.’ Passive investing is typified by a buy-and-hold portfolio strategy for long-term investment horizons, with minimal trading. It doesn’t require much interaction and you don’t need to follow up with anyone; you just passively receive updates over time, but you can otherwise forget about it.
On the other hand, investing involves frequent trading, with the goal of beating average index returns. When an investor is buying individual stocks of a company, they often look for tips on social media, or they might ask their friends what looks good. In one survey, individual investors were asked what drew their attention to the firm whose stock they most recently bought. all of them referred to direct personal contact — and personal interaction was also important for institutional investors. To quote Schiller, that’s because “Investors spend
